This story is the first part in a four-part series. The second installment will discuss the evolution of LPO.

As consumers continue to push pricing down and corporations fight for their survival, growing legal costs have come to center stage. In an effort to contain these costs, an increasing number of companies are beginning to explore legal process outsourcing (LPO) as a possible solution.

For instance, a company may ask its procurement teams to identify LPO providers to perform transactional legal work so that the in-house legal department can focus on more specialized activities. Or the legal department itself may turn to an LPO provider instead of more expensive outside counsel for certain legal tasks.

To adopt an effective LPO strategy, corporate legal departments should first understand the new business model the LPO market is promoting (see Figure 2). In the LPO business model, outside counsel is used only for legal tasks requiring the most significant level of specialized legal knowledge and experience (e.g., legal opinions).

Less-specialized work that requires a moderate level of legal knowledge and experience (e.g., contract review) is pushed down to in-house legal resources, some of whom may be organized under a shared services model to deliver services required by multiple business units.

Finally, repeatable legal tasks requiring relatively little specialized knowledge and experience are sourced to LPO providers. Examples of such tasks include routine and/or transactional activities such as e-discovery, legal secretarial/billing services, patent services, legal research, and contract management (see Figure 3).

Effective use of this new business model can give companies the opportunity to realize cost savings as more work moves to lower-cost providers, with LPO providers providing significant savings over the use of outside counsel.

In addition, by using the business model to more precisely define what work to delegate to outside counsel, a company can position itself to further reduce costs by consolidating the number of outside legal vendors and negotiating new and innovative procurement and sourcing deals with outside counsel based on the company's redefined legal needs.

In summary, by utilizing LPO for appropriate legal tasks, a corporate legal department may be able to:

• Reduce the size of its internal group
• Reallocate high-level resources to more complex tasks
• Absorb some of the work typically performed by outside counsel
• Access subject-matter specialists in specific legal service areas (such as e-discovery) in which the company lacks an in-house capability
• Facilitate a 24/7 (“follow the sun”) work model by utilizing onshore and offshore resources
• Benefit from preferential pricing due to the evolving legal outsourcing market
• Monitor and maintain performance by enforcing SLAs based on measurable criteria
• Reassess its current sourcing and procurement initiatives with outside law firms
• Develop a shared services approach to in-house legal functions

The potential bottom-line benefit is that corporate legal departments will have the ability to carry out necessary legal activities at a lower cost without sacrificing quality.